How is a swing high defined?

A swing high is defined as a point in price action where the high of a price bar is greater than the highs of the neighboring bars on either side. This means that the high must be higher than the highs of the two preceding days and the two following days. This definition captures the essence of a swing high as it indicates a moment where the price has peaked and is likely to reverse, which is crucial for identifying potential market tops or turning points.

The rationale behind this pattern is that it reflects a temporary shift in momentum where buyers have driven prices up, surpassing the previous highs, before the market possibly begins to sell off. Recognizing swing highs is an essential skill in technical analysis, as it helps traders make informed decisions about potential entry and exit points based on price movements.

Understanding this concept is vital in developing a comprehensive trading strategy that includes analyzing price swings to determine market trends, support, and resistance levels.